MAC: Mines and Communities

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The Kimberley Process and its gaping holes

Published by MAC on 2011-10-10 Source: Statement (2011-10-24)

The article below addresses issues to be raised at the Kimberley Process (KP) meeting in November this year.

It's a personal, often embittered, analysis of the failures in the KP's Certification Scheme (KPCS) to staunch the flow of "conflict diamonds" and the proceeds accruing from them, made by one of its key architects.

Some critics were already harbouring doubts about the manner in which the KP was set up - specifically the participation in it by the world's largest diamond trader, Anglo-De Beers. It seemed clear that the company's own interests would, from the outset, be served by restricting competition in the market, however "moral" that could be dressed up to be.

Wasn't Ian Smillie naïve to believe that the diamond industry as a whole would become a reliable partner with governments and NGOs in enforcing these restrictions?

He reasonably points out that the mining companies (and by implication traders) "knew what would work" from the beginning.

But he seems surprised that the industry has now become - as he puts it: "divided between those who know and fear what happens when regulators fail to regulate; and those eager to cash in on a short-term free-for-all. "

Surely that's how every major extractive company functions, whatever ethical gloss it puts on its actions? After all, it's in business for its shareholders, not for the love of humanity.

While Smillie is right to claim that the KPCS was (still is?) unique in its scope and number and variety of its partners, this was never going to be sufficient to sustain the process as a whole.

Ian Smillie concludes: "Mineral extraction and trade, combined with fair and effective regulation, has been a great benefit to some countries and their people. The task now is to remove the qualifier, 'some'. The challenge is to ensure that minerals can benefit all countries and their people."

But that may prove to be the most naïve hope of all.

[Comment by Nostromo Research, 8 October 2011].

Additional note by MAC editor, Catherine Coumans:

I see the demise of the KP, disappointing as it may be in some ways, and the bitter and very public acknowledgments of that failure by Smilie, as an extremely important argument against such essentially still-voluntary mechanisms, and in support of regulation.

The KP system was narrowly focused, had multi-stakeholder support, was international in scope, high profile, had benefits and sanctions built in (carrots and sticks), and went on for about 10 years.

But it didn't ultimately work because there was no way to enforce it across the board.

That is a valuable lesson we can use to counter ongoing Corporate Social Responsibility (CSR) nonsense.

Inerntational Law and Human Rights Norms: Lessons from the Kimberley Process

Notes for Remarks by Ian Smillie

For the Conference on Informed Activism: Armed Conflict, Scarce Resources and the Congo

At The Strassler Center for Holocaust and Genocide Studies at Clark University Worcester Massachusetts

24 September 2011

I'm going to tell you the story of a tragedy. It starts with the deaths of hundreds of thousands of people in the Congo, Angola, Sierra Leone and other countries in Africa, and an attempt to create a regulatory system to halt and prevent the trade in conflict or "blood" diamonds. It ends - or at least it is characterized today - by a collapse in common sense, by petty political squabbles, human rights abuse and overt diamond smuggling. It's about a regulatory system that won't regulate, one that was designed to end diamond smuggling but instead actively condones it.

It's about an industry whose primary product is sold on the basis of love, but where greed is so infectious that some parts of the industry, notably but not exclusively in India, are willing - eager, even - to ignore the lessons of the past, endangering the industry's own long-term self-interest.

It's about a country, South Africa, which suffered more than most from human rights abuse, which did more to create the Kimberley Process than any other, but which now coddles dictators, actively blocks progress and is blind to human rights abuse.

I could pitch this story as a glass half full. But it's not half full. It's empty. And as we look forward to the role that extractive industries play and can play in Africa, it's a cautionary tale; a tale about good intentions that have been thwarted by wrong turns, incompetence, vested interests and venality.

The Kimberley Process grew out of a series of reports by Global Witness and Partnership Africa Canada on the use, by rebel armies, of diamonds to buy weapons in the horrific wars of the 1990s in Angola and Sierra Leone. The International Rescue Committee has done several studies showing that since 1998 in the Democratic Republic of Congo, 5.4 million people have died from war-related causes. Diamonds played a central role.

The contagion of conflict diamonds touched half a dozen other countries, including the Republic of Congo, Central African Republic, Liberia, Guinea and Côte d'Ivoire. A campaign developed, and the first in a series of meetings to deal with the problem was called by the

Government of South Africa in the town of Kimberley, where South African diamonds were discovered in the 1860s.

As it evolved, the process was far from easy, but it was obvious to everyone involved that a solution had to include industry, NGOs and governments.

For that to work, industry had to suspend its notion of NGOs as a bunch of anti-capitalist luddites. NGOs had to suspend their notion of the diamond industry as a bunch of monsters willing to trample everything underfoot on the way to the bank. Both had to think about how to involve governments, many of them with serious problems of governance and probity.

At first, and on the face of it, the KPCS [Kimberley Process Certification Scheme] was a great success. In less than three years, some 70 governments, including all those in the European Union, had joined in a process to regulate the international trade in rough diamonds. For governments, this was a voluntary agreement, but if a country joined, the rules were not voluntary; they were compulsory. They included the need to pass KP-specific legislation and regulations, and so the United States, South Africa, China, Brazil, Russia and six dozen other countries passed legislation, making observance of the KPCS standards compulsory under their own rule of law.

Those standards included an auditable chain of custody so that any rough diamonds being exported or imported could be traced back to the place they were mined, or to the point of import. No diamonds would be imported into any KP member state except from another KP-member state, so here was another reason to join: if Brazil was not a member, it could not export diamonds to any country that was. If the United States was not a member, it could not import rough diamonds from any country that was.

The overall agreement was endorsed by the WTO and is backed by a detailed and comprehensive data base on diamond production and international trade. In all of this, we had something completely new - not an international treaty that would have taken years to ratify; not a UN arrangement, where agreement exists mainly in the breach. It was an individual undertaking by each member state, backed and enforced by its own laws, laws that had to meet the scrutiny of the other members.

And that meant other member states, plus industry, plus civil society.

Throughout the negotiations, industry and civil society were at the negotiating table, and their voice was as strong as any other. Industry, of course, knew what could work. If it had been left to NGOs and governments, the result would undoubtedly have been like something designed by a committee: large, unwieldy, and probably attracted to china shops. But NGOs were there to insist on something with teeth; not another voluntary code of conduct; not aspirational notions about good behaviour, but something codified and enforceable.

The NGO voice in all of this was important, because they held the trump card. They had the ear of the media. De Beers might spend $500 million a year on advertising, but a lot of that could be undone by one well-placed NGO article in the Financial Times or Vanity Fair.

What the NGOs said about the trade in conflict diamonds was true, and the industry understood. Even before the KPCS came on stream, Nicky Oppenheimer, the Chairman of De Beers, said that he was confident that "we can drive this trade into the gutter where it belongs."

But after two or three enthusiastic first years of implementation, things started to go wrong.

Internal monitoring in countries that suffered most from the diamond wars - DRC, Sierra Leone and Angola - was, and remains very poor. This was obvious enough, but nobody did anything about it.

It became apparent that cutting and polishing centres, which had been left out of the KPCS, constituted a serious loophole, and needed to be included. But this was blocked.

Then came the first major political challenge, Venezuela, where the Chavez regime simply lost interest in the Kimberley Process. Instead of expelling Venezuela, the KP knuckled under to Bolivarian bombast, creating an exception that - incredibly - endorses Venezuelan diamond smuggling.

Then the government of Zimbabwe shot and killed over 200 artisanal diamond diggers at Marange, arresting and beating and raping others, and combining it with wholesale smuggling and government collusion in all manner of illegal behaviour.

The Kimberley Process - well apprised of the situation by its own teams, by extensive media reports and by detailed NGO investigations, has done little more in two years of debate, than endorse Zimbabwean diamond exports that are now the mainstay of the Mugabe regime. Incredibly, the Kimberley Process, designed to end diamond-related violence, now, in fact, condones it.

Disgusted, NGO participants have announced a boycott of the Kimberley Process Plenary Meeting in Kinshasa in October.

The barricades may be going up again. The industry is divided between those who know and fear what happens when regulators fail to regulate; and those eager to cash in on a short-term free-for-all.

It is still unclear what will happen when the Kimberley clans gather in Kinshasa at the end of October, but there are a few lessons that can be drawn from the experience of the past decade:

• The Kimberley Process did help to end the diamond wars. The spotlight, on an industry that had hitherto been completely unregulated, worked. It helped to drive conflict diamonds into the gutter where they belong;

• Regulation of the trade in rough diamonds was not costly and generally, where it was done properly, it was not difficult. The sky did not fall on the industry as many predicted. In the first years, the KPCS gave industry something to be proud of and to advertise, and it raised the volume of legally exported diamonds from many poor countries. In Sierra Leone, legal exports rose from $1 million in 2001 to $142 million in 2005. Those diamonds were taxed and provided badly needed revenue in a country recovering from a brutal war;

• The tripartite nature of the KP - industry, NGOs and governments - worked well. Industry and NGOs participated and still participate in all committees, all working groups and all review missions.

But in negotiating the KPCS, the parties left a few essential things out. Instead of independent third party monitoring for compliance, they created a peer review mechanism. When this works well, it works well enough. But mostly it doesn't work at all.

There are other lessons, lessons that would be obvious enough, even to a casual observer:

• Rules need to be clear and fair, and they must be enforceable and enforced, with meaningful penalties for non compliance;

• There is no substitute for independent third party monitoring;

• There must be a mechanism for adaptation and change, and a decision-making process that works. The KP operates on the basis of consensus, which in KP lingo means that everyone must agree or nothing will happen. If South Africa is willing to protect Zimbabwe from any kind of censure for its monstrous behaviour, South Africa prevails. If Zimbabwe vetoes the American nomination for Chairmanship of the KP in 2012 - as it has for a year - it prevails. This ridiculous provision has led the Kimberley Process itself into the gutter.

It is not clear if there is a way out of this tragedy. It cannot continue as it is. Certainly a collapse of the KP would be unconscionable, and there is no way that the diamond industry can return to the status quo ante of the 1990s. In a post-9/11 world, a commodity as amenable to money laundering as diamonds will simply not be allowed to roam free.

But I'd like to tell you about two other initiatives that have arisen, mainly because of the KP's inability to deal with the challenges it has faced.

The first is the Responsible Jewellery Council. The RJC brings together mining companies, major retailers and everyone in between to a new set of standards that rise far above anything in the Kimberley Process. The standards include everything from labour practices to the environment and community involvement, and they were established with input from NGOs, academics and governments. The standards are compulsory for all members. And they are underpinned by a system of independent third-party monitoring. In a sector where the word compulsory and the concept of independent monitoring are alien corn, this is unique. It's not perfect, it's not finished, and it's not a substitute for the Kimberley Process, but it's certainly worthy of consideration by other extractive industries whose operations are under public scrutiny.

The second is the Diamond Development Initiative - DDI - whose Board of Directors I chair. DDI began to gel about five years ago, when it became clear that the Kimberley Process was not able to deal with underlying development problems in the alluvial diamond fields of Africa - the same alluvial diamond fields that spawned conflict diamonds. After a great deal of discussion, DDI was incorporated in the United States as a non-profit, charitable organization. It aims to deal with the development issues that confront diamond producing countries in Africa and South America, and more especially, the problems of their 1.5 million artisanal diamond diggers. These people earn, on average, about a dollar a day. They produce 15% of the world's gem diamonds and yet they live and work in squalor, vulnerable to every kind of military and economic predator.

DDI aims for fundamental change at the very grassroots of the diamond industry. It is about changing the way artisanal mining is viewed by governments and industry; it's about formalizing the informal; and it's about getting fair prices and decent working conditions for people who produce enough wealth for this not to be an impossible dream.

This is an ambitious undertaking and there is a century worth of bad mining, bad standards, bad governance and bad people lined up to say it won't work. But maybe it will. If it does, it will be because it has been well thought through and has the right kind of backing and flexibility. But it will also be because it has the support of people at all levels of the diamond industry, from several donor governments, and from the governments of the DRC, Sierra Leone, Liberia and others.

I said at the outset that where the KP is concerned, the glass is not half full; it's empty. Maybe that's too harsh. The Responsible Jewellery Council and the Diamond Development Initiative show that progress can be made.

But these initiatives are not about regulating trade; they are complements to the Kimberley Process, but they are not substitutes or alternatives. Several governments, to their great credit, have been pushing hard for reform within the Kimberley Process. There is still time for Kimberley, not much, but it's still there. Maybe the NGOs and companies and governments that understand the issues and want an effective regulatory system, one that can prevent the return of blood diamonds and the disgrace of all diamonds, can still make it happen.

The wide lesson of the Kimberley exercise is that in a globalized world, where everyone has a cell phone with a camera and some sort of access to the internet, the demand for corporate social responsibility is not just a passing fancy.

The Dodd-Frank Act, the Extractive Industries Transparency Initiative (EITI) and the Publish What You Pay Campaign demonstrate that the issue is not going away. The risk of doing nothing will be high and the cost may be higher. In some industries, effective regulation is not a burden, it is protection, and while the free-for-all that prevailed in previous generations of mining in Africa may continue in countries where governance remains problematic, problematic governance is not in anybody's long-term best interest, least of all mining companies.

In the end, the Kimberley Process and the efforts to regulate the extraction of, and trade in other minerals in Africa is about people - the hundreds of thousands who have died as a direct result of mineral-fuelled wars, the millions of people who have died from indirect results of these wars, and the many more millions who might have had better lives if minerals had contributed more to development than to underdevelopment.

The story, however, is not over. Mineral extraction and trade, combined with fair and effective regulation, has been a great benefit to some countries and their people. The task now is to remove the qualifier, "some". The challenge is to ensure that minerals can benefit all countries and their people.

--

Ian Smillie, a leading participant in the creation of the Kimberley Process, is the author of Blood on the Stone: Greed, Corruption and War in the Global Diamond Trade. He Chairs the Diamond Development Initiative, an organization addressing the political, social and economic challenges of artisanal diamond miners and their communities.